Financial capability refers to the knowledge, understanding, attitudes and – most importantly – behaviors – which consumers need to display in order to manage their money well, adapt to new financial circumstances and take advantage of financial opportunities as they arise.
In both developed and developing countries, people need the skills and confidence to manage their money well. At the bottom of the pyramid, the growth of microfinance, the expansion of remittance networks and the introduction of branchless banking technologies have put new financial products within reach for millions of poor consumers – many of whom are entering the financial system for the first time and find it challenging to fully harness the benefits of these developments.
Low-income households in Africa often have limited access to demand-oriented financial services such as savings, loans, and insurance, often resulting in vulnerability to adverse shocks and the necessity to revert to more expensive traditional alternatives. Research has shown that in order to strengthen financial inclusion in Africa, there is a need to promote financial capability, and thus to empower people to be capable of managing their financial assets and liabilities by better understanding their rights and responsibilities. Increasing financial capability ultimately aims at empowering people and changing behaviors.
Strengthening financial capability might however not be sufficient. Governments also have a role to play in protecting consumers by ensuring that financial institutions apply recognized standards and suitable codes of conduct: financial capability cannot be discussed without recognizing the need for consumer protection.
In order to protect consumers, governments need to ensure that they have regular reliable information on the prices and risks involved in the services offered by financial institutions offer, in order to enable consumers to make informed choices. An enforcement mechanism has to be in place that ensures rules are obeyed by all market players.
Financial capability measures need to go hand in hand with responsible, transparent and reliable services provided by financial institutions. While regulation can establish a general operating framework, it is up to the individual financial services provider to implement responsible financial practices.
Child and Youth Finance
ChildFinance is a movement that has as its focus the creation and strengthening of systems, structures and policies which provide children with choices, informs them of their rights, instill in them values, empower them to make sound financial decisions, build their assets and invest in their own futures.